The World Turned Right-Side Up: A New Trading Agenda for the Age of Globalization

About the Author

Not
far from here, a little over 220 years ago, General Lord Charles
Cornwallis found himself in a bit of bother due to the ragtag
Continental army under General George Washington. After the heroic
night storming of one of his outer redoubts by Colonel Alexander
Hamilton, Cornwallis realized that he was obliged to surrender his
army of British grenadiers, the finest infantrymen in the world, to
the upstart colonists. This was a fact that the noble-born
Cornwallis simply could not face. Rather than endure the social
humiliation of surrendering in person to Washington, the noble lord
feigned illness to avoid the surrender ceremony altogether.
Washington, the scion of one of Virginia's oldest families, was
quick to recognize Cornwallis's slight; he sent his
second-in-command, General Lincoln, to meet with Cornwallis's
stand-in, General O'Hara. As the British troops marched by their
American conquerors, the British military band, reflecting what
must have been the utter disbelief of the British army, played the
tune, "The World Turned Upside Down."

Since that encounter on the banks of the
James (with the notable exception of the War of 1812),
Anglo-American ties have recovered from this nadir, especially
during the 20th century. It is not an exaggeration to say that, in
Great Britain, America has no more proven or dependable an ally.
History has underscored the commonalities of the relationship with
ties built on common language, common history, and common culture.
It is hard to imagine another two powers having shared interests as
compatible as the descendents of Lord Cornwallis and his worthy
adversary.

Yet
now this seemingly unshakeable relationship is being called into
question, and a seminal decision regarding its future awaits
Britain early in the new century. A referendum on Britain's entry
into the Euro-zone1 may occur as early
as the next parliament. A "yes" vote would irrevocably merge
British sovereignty into a larger European supranational construct,
if the rhetoric of the current Euro-zone members is to be believed.
This is, quite simply, the last real chance for Britain to choose
an alternate future path, one that recognizes that its natural
economic and political partner remains the United States and not
the European Union (EU).

THE CASE FOR
BRITAIN IN NAFTA

Such
a shift has its origins firmly planted in modern-day realities.
When asked in a November Economist poll who was the UK's most
reliable ally in a crisis, 59 percent of those polled said the
U.S., with only 16 percent paying Europe that compliment. People in
the UK remain profoundly skeptical of Europe and the euro; this
dissatisfaction will lead them, sooner or later, to cast about for
a viable alternative to being swallowed by the EU. Thus, the notion
of closer Anglo-American trade ties is destined to play well in the
UK. This strategy is politically viable, especially for the Tories.
There is no doubt that the people of the UK remain deeply skeptical
about the euro in particular and the European experiment in
general. For instance, the unpopular Tories, albeit on a low
turnout, stunningly won the Euro-elections of summer '99 by turning
them into a referendum on joining the euro. A September 1999 survey
by Solomon Smith Barney, Citibank, and MORI, the preeminent British
polling firm, showed 58 percent of the population against euro
membership and only 27 percent in favor. Recently, in the wake of
the Anglo-French beef dispute, the numbers have gotten even worse
for advocates of euro membership. A December 1999 survey shows that
support for the single currency has slumped to a record low of 17
percent. Nor is even remaining in the European Union beyond
question. Another MORI poll of May 1999 indicated that 47 percent
of those with a definite opinion wanted Britain to withdraw from
the EU altogether.

Despite these figures, the Labour Party
platform has committed the government to call for a referendum on
the euro in the life of the next parliament. Assuming the
Conservatives campaign for a "no" vote in a euro referendum,
however well they put their argument, however skillfully they
deconstruct the "yes" case, their task is an essentially
destructive rather than a creative one. This is a charge that has
dogged conservatism in both the U.S. and UK since the glory days of
Reagan and Thatcher; one knows what conservatives are against, but
what are they for? This damning question is invariably what Labour
is bound to ask in the upcoming British referendum. Silence is not
an effective answer, either politically or intellectually.

My
proposal is that, as an alternative to Prime Minister Blair's
"third way" push for ever closer integration with Europe, we should
rally round a rival standard: Britain's entry into the North
American Free Trade Agreement (NAFTA) as an Associate member. Such
a plan requires the UK to shift its politico-economic focus from
Europe and, instead, return its gaze to what is clearly the most
successful partnership of the 20th century--the special
relationship between the UK and the U.S. of Hamilton and
Washington. Broadening NAFTA represents the kind of international
institution we conservatives ought to favor: a coalition determined
to genuinely maximize trade liberalization throughout our member
states.

THE AMERICAN CASE FOR NAFTA
ENLARGEMENT

Beyond providing the British with a
compelling political alternative to euro membership, there are
several general reasons such an association makes sense from an
American point of view. First, the U.S. is already deeply enmeshed
commercially with Britain; further trade liberalization would
result in immediate and significant benefits for the American
economy. Over the last 10 years UK net direct investment in North
America has been greater than double its investment in the EU.
Direct net investment in the UK from the U.S. and Canada has been
1.5 times the figure of total EU investment in Britain. In 1997
British direct investment in the U.S. was $18.3 billion, greater
than any other country's, and 30 percent of the total of all
foreign direct investment in the U.S. America invested more in
Britain than anywhere else--$22.4 billion, or 20 percent of the
total of all U.S. foreign direct investment. Also, Sterling has
tended to be more in line with the dollar than with the D-mark and
the other European currencies. This greatly affects interest-rate
harmonization, leading to the inescapable conclusion that the
American and British economies are more in-sync with one another
than either is with the economic powers on the Continent.

The
changed nature of the post-Cold War era itself has made a
significant U.S.-UK economic link possible. Sharing borders, as the
UK does with the Continent, does not necessarily translate into
increased financial interactions compared with trade with a country
far away, as it has done throughout history. This is the result of
the telecommunications revolution that is such a salient
characteristic of the age of globalization. To some extent the
Internet has epitomized this "death of distance." The centrality of
a U.S.-UK trade link would not have worked nearly so well in the
age of the sailing ship, or even when the Treaty of Rome was signed
in 1957. But globalization has made such a link very possible as
the above economic figures indicate.

Second, the U.S. and the UK share a common
politico-economic culture; this makes a trade combination between
them far more likely to prove economically successful. In the era
of globalization, the world can best be assessed as divided into
two camps, exhibiting markedly different strains of capitalism:
Statists and Reaganite/Thatcherites, with advocates of the third
way vainly trying to square the circle of finding a coherent middle
way between the two. Germany and France, with their reliance on a
massive role for the state in their economies, lavish tax and
benefits systems, structurally high unemployment (U.S. unemployment
is less than half that of France, Italy, Spain, and Germany), and
greater tendency toward protectionism, are clearly statist in
politico-economic culture. A most curious phenomenon is that all
the major parties in both France and Germany share a common loyalty
to the social-democratic model. This is not the case in the UK;
Prime Minister Tony Blair has done little to overturn the effects
of the Thatcher revolution relating to privatization, deregulation,
and a more market-oriented approach. It is simply a fact of life
that continental Europe is largely statist and that this
politico-economic orientation is increasingly incompatible with the
Anglo-Saxon form of capitalism. Any historical look at the UK's
long-evidenced frustrations with the EU illustrates the
difficulties of unlike forms of capitalism banding together. The
U.S. and the UK exhibit an anti-statist, pro-free trade,
pro-markets politico-economic culture; sharing a common school of
thought makes a trade combination infinitely more likely to be
successful and is a strong argument in favor of the new NAFTA
combination.

An
expanding, free-trade oriented NAFTA would have a great competitive
economic advantage over the EU due to this shared politico-economic
culture. The English-speaking peoples' anti-statist cultural model,
stressing the centrality of the rule of law, relatively lower tax
rates, and less social spending, is the principal reason that, over
the past 15 years, the U.S. and Canada have created 2 million more
new jobs than the EU countries. Dismally, the EU has run a net loss
of private sector jobs in the 1990s. The EU has a more corporatist
approach, wants a larger role for the state in the marketplace, a
padded safety net and, correspondingly, espouses a greater advocacy
of protectionist doctrines to shield these inefficient practices.
The Anglo-American economic culture exhibits a greater advocacy of
free trade, a more dynamic economic environment, and a limited
safety net. Such a grouping will inevitably fare better in the new
era, driven as it is by markets and economic fundamentals. In terms
of politico-economic culture in the age of globalization (to say
nothing of the advantage a common language bestows), a free trade
area centered around an Anglo-American nexus is simply a better fit
for both countries than any conceivable alternate economic
arrangements.

Third, the grouping will also protect the
U.S. politically from whatever the outcome of the European
experiment in supranationalism. I wish to make it clear that I am
not against Europe; I am against a protectionist Euro-Federal
grouping. We need to be as clear-eyed about this as the French and
Germans are. They have no trouble reconciling the ambiguity that
the U.S. is both an ally and a rival of theirs; such are the
complexities of the world. There is a danger for the U.S. if the EU
proves to be too successful in its attempts at centralization. If
it succeeds in becoming some sort of coherent federal structure, it
may well try to sever the transatlantic link--as Henry Kissinger
has suggested2 --even attempting
to become a rival hegemon in the long term. This is fundamentally
not in America's interests. There is little doubt that such a goal
is the object of many European centralizers. Georges-Marc Benamou,
in Le Dernier Mitterand, has the elderly French President saying,
"France does not know it, but we are at war with America. Yes, a
permanent war, a vital war, a war without death. Yes, they are very
hard the Americans, they are voracious, they want undivided power
over the world."3 Likewise Gerhard
Schroeder, in a television interview on December 28, 1999, said,
"Whining about US dominance does not help, we have to act." He then
went on to advocate that Europe act more like a single country if
it wants to challenge U.S. economic and political dominance.4 As the preponderant
power in the world, it is precisely such a challenge, from however
seemingly benign a source, that America must counter. Nor is there
a genuine teleological argument here; there is no doubt that a
major strain of Euro-federalism is anti-American in its thrust. We
need to stop thinking that French rhetoric isn't serious, that it's
just a cultural eccentricity. Rather, it reflects the honest
beliefs of a people that have a very different political and
economic agenda from ours. Britain will not play a decisive role in
what becomes of the EU (as always, that will be left to Germany and
France), but it can play a critical role in assuring that an
American-led bloc will maintain its dominance by a wide margin over
such an integrated statist rival.

THE WAY AHEAD

The
political way ahead for this revolutionary new trade nexus is
straightforward. After campaigning for the euro option in the
context of a referendum early in the life of the next parliament
and losing, the Blair government will either fall or be gravely
weakened, as it is so closely associated with entry into the
Euro-zone. Either with a desperately weakened Blair or, better yet,
a Tory government flush with triumph after winning the referendum,
Britain's entry into NAFTA becomes the logical policy alternative.
Britain, in line with the current Conservative position, should
attempt to renegotiate the Treaty of Rome, allowing it opt-outs
over all pieces of legislation relating to further losses of
sovereignty and the ability to enter into negotiations to join
NAFTA as an Associate member. Unlike others who advocate a closer
Anglo-American trade link, however, I believe such talks, while
desirable from a British point of view, are bound to fail. As
Geoffrey Martin, the European Commission's representative in London
stated, "The Conservative Approach is detached from the real
circumstances of the EU."5 He pointed out that
the trend in the EU was to extend its remit; I take him at his
word. The EU
will go forward with an ever closer union whatever Britain decides
to do. It is precisely because of these differences over Europe
that the UK is looking for an alternative to euro membership in the
first place. In such a situation the UK may well find it necessary
to leave the union.

If
negotiations fail (as is likely), Britain should then reenter the
European Free Trade Area (EFTA), also joining the European Economic
Area (EEA) along with Norway, Iceland, and Liechtenstein, which is
the linking of the single markets of the EU and willing EFTA
members, excepting matters relating to the Common Agricultural
Policy and fisheries.6 Such a link would
preserve British sovereignty (a vital political concern), keep the
UK in the single market, while allowing it to negotiate Associate
NAFTA status. EEA membership entails no transfer of legislative
power from the parliaments of contracting parties to EEA
institutions. Decisions by the EEA joint committee (composed of EU
and EEA members) in principle need to be transposed into national
legislation to be binding in each EFTA country. This would be the
best-case scenario for Britain in the age of globalization;
remaining in the common market while joining an expanding, free
trade-oriented NAFTA would amount to having
its cake and eating it too. However, if the other member states of
the EU refuse to allow for such a variable-speed Europe, a
fundamental choice must then be made. Britain should then withdraw
from negotiations with Brussels and enter the NAFTA free trade area
as an Associate member.

NAFTA countries are already engaging in
preliminary talks with EFTA states about Associate member status,
along with Chile. Such a revamped NAFTA, rechristened and
transformed into a global Free Trade Association (FTA), will be
founded around a genuine commitment to increasing free trade
between its member states and at a global level. It will serve as a
practical advertisement for the enduring global benefits of free
trade; an example all the more important in the wake of the Seattle
debacle. It could come to encompass such countries as New Zealand,
Hong Kong, Bahrain, Ireland, Chile, Singapore, Israel, Denmark,
Estonia, and the Czech Republic. The Free Trade Association will be
an inclusive grouping, whose expanded membership should be based
solely on a policy commitment by its member states to a genuinely
liberal global trading order. This commitment will be characterized
by a state meeting certain numerical targets (such as those used in
the methodology employed in The Heritage Foundation's Index of
Economic Freedom) regarding a country's openness relating to its
trade policy, capital flows and investment, property rights, and
low level of regulation. Members will thus select themselves based
on their genuine commitment to a liberal trading order. The plan
embraces a commitment to a state's sovereignty; its economic
policies (and the choices they represent) will determine whether or
not it qualifies for the grouping. However, given my firm belief in
the economic superiority of the Anglo-American economic model, such
an organization will have a disproportionate number of
English-speaking members, certainly in the short- and medium-term.
However, the numerical target concept allows for self-selection,
giving the whole project an inclusivity it would otherwise lack,
while advancing our common desire to strengthen the ties that bind
the English-speaking world together. The Free Trade Association's
internal initiatives will include: freer movement of capital within
the new grouping; establishing common accounting standards; setting
uniform numerically driven very low rates of subsidy, as well as
diminishing overt and hidden tariffs.

This
new Anglo-American economic tie will simply build upon the older
links that have made this relationship one of the most fruitful and
enduring in history. This plan exemplifies conservatism at its
Burkean best, proposing policies based on conditions that already
exist, rather than as with the EU, trying to legislate sand castles
into reality. For an indication of the vibrancy of the
Anglo-American tie lies in its duration. As Winston Churchill
observed during the Battle of Britain, August 20, 1940: "The
British Empire and the United States will have to be somewhat mixed
up together in some of their affairs for mutual and general
advantage. For my own part, looking out across the future, I do not
view the process with any misgivings. I could not stop it if I
wished; no one can stop it. Like the Mississippi it just keeps
rolling along. Let it roll. Let it roll on full flood, inexorable,
irresistible, benignant, to broader lands and better days." Let us
heed this hallowed voice, preserving and enhancing this vital link,
which has seen us through so much in the past and can be a source
of so much in the future.

John C. Hulsman,
Ph.D., is Senior European Policy Analyst in the Kathryn and
Shelby Cullom Davis Institute for International Studies at The
Heritage Foundation.

1.The Euro-zone consists
of the 11 European countries that have initially adopted the euro
as their currency (Germany, France, Belgium, The Netherlands,
Spain, Italy, Finland, Ireland, Luxembourg, Portugal, and Austria).
The euro will become the sole legal tender in these participating
countries by July 1, 2002.